Q3 performance summaries bring good cheer to Mississippi bankers

Mississippi’s 86 FDIC-insured financial institutions turned profits in a third quarter that brought continued increases in net income, total assets and lending.

Some good trends are developing – especially when weighed against the trouble and strife as recently as three years ago, said Odean Busby, chairman and CEO of Magee-based Priority One Bank and chairman of the Mississippi Bankers Association

“There’s generally a positive feeling among bankers in the state all the way up and down,” he said.

Much of that comes from the fact they’re finally making money, Busby noted.

In 2011’s third quarter 8.9 9 percent of Mississippi’s FDIC-insured institutions lost money. Of the state’s small banks with assets under $100 million, 31 percent finished the third quarter of 2011 in the red. Those Mississippi banks with assets above $100 million fared much better in Q3 2011, with only 1.49 percent of them failing to make money.

Those blank spaces under “Percent of Unprofitable Institutions” on the FDIC’s Q3 Mississippi summary are an indication “things are improving pretty dramatically from where we were at the end of 2011,” Busby said.

Net income climbed $83 million over the third quarter of 2011, while total assets rose $3.4 billion. “That’s a huge increase,” Busby said of the rise in assets.

Meanwhile, positive feelings aren’t flowing as strongly among bankers nationally. FDIC third quarter performance summaries showed a net income of $36 billion, a drop of $1.5 billion from the same quarter a year ago.

Further, net operating revenue — the sum of total non-interest income and net interest income — declined by $6.1 billion (3.6 percent) from third quarter 2012, according to the FDIC Q3 summary released last week. Non-interest income finished $4.7 billion (7.4 percent) lower, as income from sale, securitization, and servicing of 1-to-4 family mortgage loans at major mortgage lenders fell by $4 billion (45.2 percent), the FDIC said.

The American Bankers Association attributed the revenue declines to rising interest rates causing a “near disappearance of mortgage refinancing” and a “significant pullback” in mortgage originations.

The national front could worsen, said James Chessen, ABA chief economist, if continued fiscal and policy uncertainty makes businesses and individuals more reluctant to borrow.

He repeated the often heard banker lament that banks have plenty of money to lend businesses but too few takers. “Lackluster loan demand, not the supply of credit, is limiting the pace of small business lending,” Chessen said.

FDIC Chairman Martin Gruenberg delivered a more upbeat Q3 assessment, though he did acknowledge the reduction in mortgage lending caused by increases in medium- and long-term interest rates which occurred in the second quarter.

“This reduced level of mortgage interest lending led to a $4-billion, year-over-year decline in non-interest income from mortgage activities,” Gruenberg said.

Overall, however, most of the positive trends in industry performance seen in previous quarters continued in the third quarter, he noted.

“Fewer institutions reported quarterly losses, lending grew at a modest pace, credit quality continued to improve, more banks came off the ‘Problem List,’ and fewer banks failed,” Gruenberg said.

In his Mississippi assessment, MBA Chairman Busby said the state’s banks are countering “all the talk about low loan demand” and cited a $1.7 billion increase in loans and leases over the third quarter of 2011 as proof.

Banks are also generating more money for lending through reductions in real estate owned, or REO, assets. That category shrunk from $695 million in Q3 2011 to $509 million in the most recent quarter, according to the FDIC summary.

“Now they have that money producing income in the future,” Busby said.

Net charge offs declined from 0.85 percent of the total in 2011’s third quarter to 0.53 percent in last year’s third quarter to 0.27 percent in the recent quarter.

“This is another indication there has been positive improvement in the overall quality among the state’s banks,” Busby said.

The longtime community bank executive also noted the decline in the percentage of bad loans in the recent quarter compared to the previous two years. Non-current loans and leases fell to 2.03 percent of total loans in the last quarter. At the close of third quarter 2011, tardy loans and leases made up 2.69 percent of the total; in Q3 2012, they made up 2.72 percent.

Accordingly, the state’s banks have lowered their loan loss reserves to 1.54 percent of the total. Loan loss allowances in the third quarter last year totaled 1.70 percent and 1.79 percent in 2011’s third quarter.

That decline in loan loss reserves “is a very strong” positive, Busby noted.

“Everything you see is pretty much positive,” he said of the FDIC summary.

Those positives include:

Increases in Mississippi banking employment from 17,234 in Q3 2011 to 17, 713 in the last quarter;

Increases in earning assets from $52 billion in Q3 2011 to $55 billion in the last quarter;

Decreases in the cost of funding earning assets from 0.88 percent of total costs in Q3 2011, 0.61 percent in Q3 2012 to 0.43 percent in the recent quarter;

Increases in total deposits from $48.4 billion in 2011’s Q3 to $51.6 billion in the recent quarter;

Steady levels of capital on hand, with a third quarter ratio of equity capital to total assets of 11.01 percent.